Definition of performance appraisal in HRM

Performance appraisal is a process for evaluating and documenting how well an employee is carrying out his or her job. It is part of a company’s performance management system.

Performance appraisals are based on the employee’s progress against goals set once a year with his or her manager. Usually, employees and managers will have check-ins throughout the year; at the end of the year the manager assigns an overall rating.

The appraisal process gives employees feedback on their work, helps managers make decisions about pay increases and bonuses, and identifies areas that need improvement. Ongoing poor performance can lead to reprimands or termination.

Because performance appraisals affect an individual’s employment path, they can be stressful for employees.

Appraisals may no longer exist as once-a-year phenomena. A growing number of companies are opting for mid-year - and even quarterly - reviews. The main argument in favour of this trend is that it may not be wise for a company to wait as long as one year to assess employee performances.

Whether it is to reward employees for something they did two quarters back or bringing them back on the path of growth, in case they have strayed, companies have realized the earlier they do so, the better. Organizations like Deutsche Bank and Akzo Nobel India have been following mid-term performance reviews for a few years now, while the list of other companies following this model appears to be growing. Nivea India is among those which have recently adopted the practice.

According to Makarand Khatavkar, MD and head, HR (Dt. 2012) at Deutsche Bank, the bank is trying to make its mid-term reviews more robust. The move is aimed at making managers and employees more accountable. Bank is currently conducting a communication and education exercise to train and convey to all our employees about the new performance system.At Deutsche Bank, performance standards are being made more objective so that they are easy to understand and implement.

During annual appraisals, mostly recent accomplishments and disappointments may get noticed as these are fresh in the memory while the events which date back a few quarters could go unnoticed. At global paints and coatings major, Akzo Nobel India, appraisals are a continuous process. "The HR team conducts workshops with managers before the mid-year and year-end cycle based on the performance and development dialogue process. The mid-year review is not about ratings but is geared at reviewing and providing guidance to the employees. The year-end process, on the other hand, focuses more on self assessment and involves feedback by both primary and secondary reviewer," said Sangeeta Pandey, director, HR (Dt. 2012), Akzo Nobel India.

Performance Appraisal is the systematic evaluation of the performance of employees and to understand the abilities of a person for further growth and development. Performance appraisal is generally done in systematic ways which are as follows:

1. The supervisors measure the pay of employees and compare it with targets and plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

1. To maintain records in order to determine compensation packages, wage structure, salaries raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on right job.
3. To maintain and assess the potential in a person for growth and development.
4. To provide a feedback to employees regarding their performance and related status.
5. It serves as a basis for influencing working habits of the employees.
6. To review and retain the promotional and other training programmes.

Advantages of Performance Appraisal

It is said that performance appraisal is an investment for the company which can be justified by following advantages:

1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion programmes for efficient employees. In this regards, inefficient workers can be dismissed or demoted in case.
2. Compensation: Performance Appraisal helps in chalking out compensation packages for employees. Merit rating is possible through performance appraisal. Performance Appraisal tries to give worth to a performance. Compensation packages which includes bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on performance appraisal. The criteria should be merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal helps the supervisors to frame training policies and programmes. It helps to analyse strengths and weaknesses of employees so that new jobs can be designed for efficient employees. It also helps in framing future development programmes.
4. Selection Validation: Performance Appraisal helps the supervisors to understand the validity and importance of the selection procedure. The supervisors come to know the validity and thereby the strengths and weaknesses of selection procedure. Future changes in selection methods can be made in this regard.
5. Communication: For an organization, effective communication between employees and employers is very important. Through performance appraisal, communication can be sought for in the following ways:
1. Through performance appraisal, the employers can understand and accept skills of subordinates.
2. The subordinates can also understand and create a trust and confidence in superiors.
3. It also helps in maintaining cordial and congenial labour management relationship.
4. It develops the spirit of work and boosts the morale of employees.

All the above factors ensure effective communication.

6. Motivation: Performance appraisal serves as a motivation tool. Through evaluating performance of employees, a person’s efficiency can be determined if the targets are achieved. This very well motivates a person for better job and helps him to improve his performance in the future.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

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